Tuesday, August 3, 2010

Figures that matter

By DR FONG CHAN ONN
sunday@thestar.com.my

http://thestar.com.my/news/story.asp?file=/2010/6/27/nation/6558595&sec=nation

The reported CPI in Malaysia has been increasing by about 3% per annum for the last three decades, while the world CPI has gone up 3,000 times over the same period. A more realistic mechanism for the computation of CPI is needed in an open and globally connected economy like ours.

MUCH has been articulated about how the Consumer Price Index (CPI) is not reflective of the purchases of ordinary Malaysians any more. This is especially true for the low to middle income wage earners, where the bulk of the population sits.

The reported CPI in Malaysia has been increasing by about 3% per annum for the last three decades, while the world CPI has gone up 3,000 times over the same period (see table on the far right). So much so that housewives scoff when they are told that prices of goods and services are only increasing at 3% a year.

Taxi drivers scream every time their vehicles are up for a service because they are charged for spare parts and servicing, which go up by at least 10% annually.






Their scepticism stems not from disbelief in the institution’s calculation but the sheer stress that they have to bear from having to make ends meet, particularly those living in the urban areas.

It also makes the ordinary citizens think that politicians and policy-makers are completely disconnected from the realities of Malay sian life, cocooned in making decisions that do not reflect the hardship they have to bear.

Employers and trade unions, when making yearly adjustments to wage levels, use the CPI as the basis for salary increments. Trade unions’ grouses are justified in the case of arguing that wage levels are not enough for a typical household to survive. However, they are equally frustrated with the system, as there is no other index or basis for greater wage increments.

It must be recognised that the “middle income trap” is, in fact, directly due to the way the CPI is being skewed and suppressed.

The table above shows the breakdown of the weightage allotted for the various broad categories of items consumed on a daily basis.

“Food and non-alcoholic beverages” and “Housing, water, electricity, gas and others fuels” make up over 52.8% of the weightage. Without going into the finer details of what the actual items are in these two categories, it is suffice to say that most of the items are either heavily subsidised or price controlled, like sugar, flour, water, petrol, electricity and so forth.

The dislocation in the CPI and the real prices paid by a household becomes more obvious when we consider that we do not just consume flour and sugar in its raw form, but in value-added items like cooked food and beverages. Eating out in coffee-shops or warung certainly include prepared items such as cooked fish, vegetable and prawns which are always levied at market prices but not captured in the CPI.

Transport, which makes up 15.9% of the weightage, does not take into account hire purchase for cars or motorcycles or the cost of imported spare parts for their repair.

Construction materials such as cement and clinker may be price controlled but the prices of houses and rental are determined at market rates, which are not subjected to regulations.

Mobile devices have become an integral part of our daily lives. Most of us have to pay bills for SMS, telephone calls and data download that are not included in the communication category.

The impact of an artificially low inflation rate is as follows:

> Important business decisions are based on the inflation rate, and this can mislead the private sector into making business judgments that are off the mark, costing the economy billions in losses.

> It leads to wages being artificially suppressed, creating a widening income gap between Malaysians working domestically and those working outside the country. This, in turn, exacerbates the “brain drain” problem.


> With low wages, we are not able to attract outside talent into Malaysia even though our goods and services are supposedly cheaper.

> It creates a technology gap, making Malaysia uncompetitive. Technology goods and services become expensive for Malaysians to purchase, including things like iPhones, Blackberry, and iPads which are soon becoming everyday items.

> We will have to depend on a low foreign exchange rate to ensure that Malaysian goods remain competitive but this is an unsustainable strategy in the long run.

> With a cheap currency, we cannot afford to purchase the most advanced machinery and technology, leading to poor fixed asset/capital build-up. This also explains part of the problem of sluggish private sector investments.

The implication of having an unrealistic CPI is a very serious matter and cannot be brushed aside as mere grumblings of the rakyat. However, just like in the treatment of the removal of subsidies and price controls, proper safety nets must be in place to protect the lower income and vulnerable groups.

The general price levels of the basket of goods and services will no doubt adjust itself as subsidies and controlled items are subsequently removed but this has to be done gradually to prevent hyper-inflation.

And additional items such as communication devices and computers will have to be introduced to reflect a more competitive and advanced Malaysia.

Next to the Gross Domestic Product (GDP), the CPI is probably the most important economic indicator that all governments use to gauge the health of an economy. As the CPI is the basis of many policy benchmarks with very far-reaching implications in the management of an economy and the wealth of a nation, a strong case of a more realistic mechanism for the computation of CPI is timely and much needed in an open and globally connected economy like Malaysia.

> Tan Sri Dr Fong Chan Onn was Prof of Applied Economics and Dean of Faculty of Economics and Administration, Universiti Malaya. He served in the Government as Deputy Minister of Education (1990-1999) and as Minister of Human Resources (1999-2008). Currently, he is the MP for Alor Gajah.










Monday, August 2, 2010

Resolve widening income disparity gap now

Source: http://www.consumer.org.my/development/socio-economic/458-resolve-widening-income-disparity-gap-now

The difference between what the rich and the poor earn (the income disparity gap) remains wide and needs the government’s urgent attention.

In a fair and just society, economic growth should benefit everyone. Unfortunately this is not happening in Malaysia in spite of years of economic growth. We have now an aristocracy of wealth where a small group of Malaysians are very rich (22 billionaires at the last count) whilst many others are barely scrapping by. We have on one hand people living in spacious multi-million ringgit homes whilst on the other hand there can be as many as 21 people crammed together in a low cost flat.

The statistics prove that the inequality gap is a major problem:


  • The bottom 40% of households have an average income of RM1,222 whilst the top 20% households earn an average of RM8,157
  • 58% of households earn less than RM3,000 per month. (In 2009, the government decided that any urban household with less than RM3,000 would be considered poor)
  • Income growth has been strong only for the top 20% of Malaysian income earners, particularly since 1990
  • The disparity within the urban group remains high with no improvements in the last decade
















In 2007, Malaysia’s Gini coefficient was 0.441 in 2007, an improvement of 0.462 was made in 2004. However in 1990, the Gini coefficient was 0.442, which means that we have hardly made any progress in addressing the problem of income inequality since that time. (Gini coefficient is a measure of inequality ranging from 0 to 1, with 0 representing absolute equality and 1 representing absolute inequality);

Much needs to be done to enable both the rural and urban poor to break from the vicious circle of poverty. Being poor, they face problems relating to nutrition, health and education. A significant portion of Malaysian children are undernourished with about 15% found to be underweight and stunted. When these children grow up without good academic qualifications, they end up with jobs that do not pay decent wages. They remain poor like their parents and so will their children and grandchildren unless the chain of poverty is broken.

It is not only a question of equity that all Malaysian should get to share the country’s economic growth. If the problem of economic disparity is not seriously looked into, it will lead to social problems for example increase in crime rates. Furthermore, the more equal societies grow faster than less equal ones.

The unresolved income disparity gap clearly shows that we have a structural problem. We should stop pursuing the model of economic development imported from the west but instead adopt a model which meets our own needs and beneficial to all sectors of the population

Thus the government should be spending more money on education and health care programmes specifically designed to help the poor. It should also decrease disparities between rural and urban investments by ensuring that employment opportunities are more widely available in the rural areas.

Funds that are needed to run programmes to narrow the income inequality gap should come from the very rich, who after all have a moral obligation to help their less fortunate country men.

We recommend the following taxes be used to narrow the income inequality gap:

a) Inheritance tax/estate duty


Introduce either inheritance tax (which will be paid by the beneficiaries) or estate duty (which is paid by the deceased’s estate). Many countries (for example the USA, UK France, Germany, Netherlands and Canada) have implemented either the inheritance tax or the estate duty. Malaysia too had the estate duty until it was repealed in 1991.

The proposed inheritance tax /estate duty should have a low starting threshold and a progressive structure. Such a tax will help the country move towards a just society.

b) Personal tax

The government should stop reducing the personal income tax rate for the higher income earners. It should instead increase the rates to collect more funds for income redistribution.



Saturday, July 31, 2010

Now let’s have a discussion — Tengku Razaleigh Hamzah

* Tengku Razaleigh Hamzah’s speech at the UKEC’s Fourth Malaysian Students Leadership Seminar in Kuala Lumpur on July 31, 2010.


July 31, 2010JULY 31 — Thank you for inviting me to speak with you. I am truly honoured. I have played some small role in the life of this nation, but having been on the wrong side of one or two political fights with the powers that be, I am not as close to the young people of this country as I would hope to be. History, and the 8 o’clock news, are written by the victors. In recent years the government’s monopoly of the media has been destroyed by the technology revolution.

You could say I was also a member of the UKEC. Well I was, except that belonged to the predecessor of the UKEC by more than fifty years, The Malayan Students Union of the UK and Eire. I led this organisation in 1958/59. I was then a student of Queen’s University at Belfast, in a rather cooler climate than Kota Bharu’s.

Your invitation to participate in the MSLS was prefaced by an essay which calls for an intellectually informed activism. I congratulate you on this. The Youth of today, you note, “will chart the future of Malaysia.” You say you “no longer want to be ignored and leave the future of our Malaysia at the hands of the current generation.” You “want to grab the bull by the horns... and have a say in where we go as a society and as a nation.”I feel the same, actually. A lot of Malaysians feel the same. They are tired of being ignored and talked down to by swaggering mediocrities.

You are right. The present generation in power has let Malaysia down.

But also you cite two things as testimony of the importance of youth and of student activism to this country, the election results of 2008 and “the Prime Minister’s acknowledgement of the role of youth in the development of the country.”

So perhaps you are a little way yet from thinking for yourselves. The first step in “grabbing the bull by the horns” is not to required the endorsement of the Prime Minister, or any Minister, for your activism.

Politicians are not your parents. They are your servants. You don’t need a government slogan coined by a foreign PR agency to wrap your project in. You just go ahead and do it.

When I was a student our newly formed country was already a leader in the postcolonial world. We were sought out as a leader in the Afro-Asian Conference which inaugurated the Non-Aligned Movement and the G-77. The Afro-Asian movement was led by such luminaries as Zhou En-lai, Nehru, Kwame Nkrumah, Soekarno. Malaysians were seen as moderate leaders capable of mediating between these more radical leaders and the West. We were known for our moderation, good sense and reliability.

We were a leader in the Islamic world as ourselves and as we were, without our leaders having to put up false displays of piety. His memory has been scrubbed out quite systematically from our national consciousness, so you might not know this or much else about him, but it was Tengku Abdul Rahman established our leadership in the Islamic world by coming up with the idea of the OIC and making it happen.

Under his leadership Malaysia led the way in taking up the anti-apartheid cause in the Commonwealth and in the United Nations, resulting in South Africa’s expulsion from these bodies.

Here was a man at ease with himself, made it a policy goal that Malaysia be “a happy country”. He loved sport and encouraged sporting achievement among Malaysians. He was owner of many a fine race horse.

He called a press conference and had a beer with his stewards when his horse won at the Melbourne Cup. He had nothing to hide because his great integrity in service was clear to all. Now we have religious and moral hypocrites who cheat, lie and steal in office but never have a drink, who propagate an ideologically shackled education system for all Malaysians while they send their own kids to elite academies in the West.

Speaking of football. You’re too young to have experienced the Merdeka Cup, which Tunku started. We had a respectable side in the sixties and seventies. Teams from across Asia would come to play in Kuala Lumpur. Teams such as South Korea and Japan, whom we defeated routinely. We were one of the better sides in Asia. We won the Bronze medal at the Asian games in 1974 and qualified for the Moscow Olympics in 1980. Today our FIFA ranking is 157 out of 203 countries. That puts us in the lowest quartile, below Maldives (149), the smallest country in Asia, with just 400,000 people living about 1.5 metres above sea level who have to worry that their country may soon be swallowed up by climate change. Here in ASEAN we are behind Indonesia, Thailand, Singapore, whom we used to dominate, and our one spot above basketball-playing Philippines.

The captain of our illustrious 1970’s side was Soh Chin Aun. Arumugam, Isa Bakar, Santokh Singh, James Wong and Mokhtar Dahari were heroes whose names rolled off the tongues of our schoolchildren as they copied them on the school field. It wasn’t about being the best in the world, but about being passionate and united and devoted to the game.

It was the same in Badminton, except at one time we were the best in the world. I remember Wong Peng Soon, the first Asian to win the All-England Championship, and then just dominated it throughout the 1950. Back home every kid who played badminton in every little kampong wanted to call himself Wong Peng Soon. There was no tinge of anybody identifying themselves exclusively as Chinese, Malays, Indian. Peng Soon was a Malaysian hero. Just like each of our football heroes. Now we do not have an iota of that feeling. Where has it all gone?

I don’t think it’s mere nostalgia that that makes us think there was a time when the sun shone more brightly upon Malaysia. I bring up sport because it has been a mirror of our more general performance as nation. When we were at ease with who we were and didn’t need slogans to do our best together, we did well. When race and money entered our game, we declined. The same applies to our political and economic life

Soon after independence we were already a highly successful developing country. We had begun the infrastructure building and diversification of our economy that would be the foundation for further growth. We carried out an import-substitution programme that stimulated local productive capacity. From there we started an infrastructure buildup which enabled a diversification of the economy leading to rapid industrialisation. We carried out effective programmes to raise rural income and help with landless with programmes such as FELDA. Our achievements in achieving growth with equity were recognised around the world. We were ahead of Our peer group in economic development were South Korea, Hong Kong, Singapore and Taiwan, and we led the pack. I remember we used to send technical consultants to advise the South Koreans.

By the lates nineties, however, we had fallen far behind this group and were competing with Thailand and Indonesia. Today, according to the latest World Investment Report, FDI into Malaysia is at about a twenty year low. We are entering the peer group of Cambodia, Myanmar and the Philippines as an investment destination. Thailand, despite a month long siege of the capital, attracted more FDI than we did last year. Indonesia and Vietnam far outperform us, not as a statistical blip but consistently. Soon we shall have difficulty keeping up with The Philippines. This, I believe, is called relegation. If we take into account FDI outflow, the picture is even more interesting. Last year we received US$1.38 billion (RM4.40 billion) in investments but US$ 8.04 billion flowed out. We are the only country in Southeast Asia which has suffered nett FDI outflow. I am not against outward investment. It can be a good thing for the country. But an imbalance on this scale indicates capital flight, not mere investment overseas.

Without a doubt, Malaysia is slipping. Billions have been looted from this country, and billions more are being siphoned out as our entire political structure crumbles. Yet we are gathered here in comfort, in a country that still seems to ‘work.’ Most of the time. This is due less to good management than to the extraordinary wealth of this country. You were born into a country of immense resources both natural and cultural and social. We have been wearing down this advantage with mismanagement and corruption. With lies, tall tales and theft. We have a political class unwilling or unable to address the central issue of the day because they have grown fat and comfortable with a system built on lies and theft. It is easy to fall into the lull caused by the combination of whatever wealth has not been plundered and removed and political class that lives in a bubble of sycophancy.

I urge you not to fall into that complacency. It is time to wake up. That waking up can begin here, right here, at this conference. Not tomorrow or the day after but today. So let me, as I have the honour of opening this conference, suggest the following:

•Overcome the urge to have our hopes for the future endorsed by the Prime Minister. He will have retired, and I’ll be long gone when your future arrives. The shape of your future is being determined now.
•Resist the temptation to say “in line with” when we do something. Your projects, believe it or not, don’t have to be in line with any government campaign for them to be meaningful. You don’t need to polish anyone’s apple. Just get on with what you plan to do.
•Do not put a lid on certain issues as “sensitive” because someone said they are. Or it is against the Social Contract. Or it is “politicisation”. You don’t need to have your conversation delimited by the hyper-sensitive among us. Sensitivity is often a club people use to hit each other with. Reasoned discussion of contentious issues builds understanding and trust. Test this idea.
•It’s not “uber-liberal” to ask for an end to having politics, economic policy, education policy and everything and the kitchen sink determined by race. It’s called growing up. Go look up “liberal” in a dictionary.
•Please resist the temptation to say Salam 1 malaysia, or Salam Vision 2020 or Salam Malaysia Boleh, or anything like that. Not even when you are reading the news. It’s embarrassing. I think it’s OK to say plain old salam the way the Holy Prophet did, wishing peace unto all humanity. You say you want to “promote intellectual discourse.” I take that to mean you want to have reasonable, thought-through and critical discussions, and slogans are the enemy of thought. Banish them.
•Don’t let the politicians you have invited here talk down to you.
•Don’t let them tell you how bright and “exuberant” you are, that you are the future of the nation, etc. If you close your eyes and flow with their flattery you have safely joined the caravan, a caravan taking the nation down a sink hole. If they tell you the future is in your hands kindly request that they hand that future over first. Ask them how come the youngest member of our cabinet is 45 and is full of discredited hacks? Our Merdeka cabinet had an average age below thirty. You’re not the first generation to be bright. Mine wasn’t too stupid. But you could be the first generation of students and young graduates in fifty years to push this nation through a major transformation. And it is a transformation we need desperately.
•You will be told that much is expected of you, much has been given to you, and so forth. This is all true. Actually much has also been stolen from you. Over the last twenty five years, much of the immense wealth generated by our productive people and our vast resources has been looted. This was supposed to have been your patrimony. The uncomplicated sense of belonging fully, wholeheartedly, unreservedly, to this country, in all it diversity, that has been taken from you.
Our sense of ourselves as Malaysians, a free and united people, has been replaced by a tale of racial strife and resentment that continues to haunt us. The thing is, this tale is false.

The most precious thing you have been deprived of has been your history. Someone of my generation finds it hard to describe what must seem like a completely different country to you now. Malaysia was not born in strife but in unity. Our independence was achieved through a demonstration of unity by the people in supporting a multiracial government led by Tengku Abdul Rahman. That show of unity, demonstrated first through the municipal elections of 1952 and then through the Alliance’s landslide victory in the elections of 1955, showed that the people of Malaya were united in wanting their freedom.

We surprised the British, who thought we could not do this.

Today we are no longer as united as we were then. We are also less free. I don’t think this is a coincidence. It takes free people to have the psychological strength to overcome the confines of a racialised worldview. It takes free people to overcome those politicians bent on hanging on to power gained by racialising every feature of our life including our football teams.

Hence while you are at this conference, let me argue, that as an absolute minimum, we should call for the repeal of unjust and much abused Acts which are reversals of freedoms that we won at Merdeka.

I ask you in joining me in calling for the repeal of the ISA and the OSA. These draconian laws have been used, more often than not, as political tools rather than instruments of national security. They create a climate of fear. These days there is a trend among right wing nationalist groups to identify the ISA with the defence of Malay rights. This is a self-inflicted insult on Malay rights. As if our Constitutional protections needed draconian laws to enforce them. I wish they were as zealous in defending our right not to be robbed by a corrupt ruling elite. We don’t seem to be applying the law of the land there, let alone the ISA.

I ask you to join me in calling for the repeal of the Printing and Publications Act, and above all, the Universities and Colleges Act. I don’t see how you can pursue your student activism with such freedom and support in the UK and Eire while forgetting that your brethren at home are deprived of their basic rights of association and expression by the UCA. The UCA has done immense harm in dumbing down our universities.

We must have freedom as guaranteed under our Constitution. Freedom to assemble, associate, speak, write, move. This is basic. Even on matters of race and even on religious matters we should be able to speak freely, and we shall educate each other.

It is time to realise the dream of Dato’ Onn and the spirit of the Alliance, of Tunku Abdul Rahman. That dream was one of unity and a single Malaysian people. They went as far as they could with it in their time. Instead of taking on the torch we have reversed course. The next step for us as a country is to move beyond the infancy of race-based parties to a non-racial party system. Our race-based party system is the key political reason why we are a sick country, declining before our own eyes, with money fleeing and people telling their children not to come home after their studies.

So let us try to take 1 Malaysia seriously. Millions have been spent putting up billboards and adding the term to every conceivable thing. We even have cuti-cuti 1 Malaysia. Can’t take a normal holiday anymore.

This is all fine. Now let us see if it means anything. Let us see the Government of the day lead by example. 1 Malaysia is empty because it is propagated by a Government that promotes the racially-based party system that is the chief cause of our inability to grow up in our race relations. Our inability to grow up in our race relations is the chief reason why investors, and we ourselves, no longer have confidence in our economy. The reasons why we are behind Maldives in football, and behind the Philippines in FDI, are linked.

So let us take 1 Malaysia seriously, and convert Barisan Nasional into a party open to all citizens. Let it be a multiracial party open to direct membership. PR will be forced to do the same or be left behind the times. Then we shall have the vehicles for a two party, non-race-based system.

If Umno, MIC or MCA are afraid of losing supporters, let them get their members to join this new multiracial party. PR should do the same. Nobody need feel left out. Umno members can join en masse. The Hainanese Kopitiam Association can join whichever party they want, or both parties en masse if they like. We can maintain our cherished civil associations, however we choose to associate. But we drop all communalism when we compete for the ballot. When our candidates stand for Elections, let them ever after stand only as Malaysians, better or worse.

Now let’s have a discussion.


Affirmative action uncertainty affecting FDI

By Lee Wei Lian

July 30, 2010

Source: http://www.themalaysianinsider.com/malaysia/article/affirmative-action-uncertainty-affecting-fdi-says-nazir/


Affirmative action uncertainty affecting FDI, says Nazir


KUALA LUMPUR, July 30 — Wrangling over affirmative action in the proposed New Economic Model (NEM) is causing uncertainty among investors, said top banker Datuk Seri Nazir Razak.

The CIMB Bank chief executive officer said that there was a lot of debate over what sort of affirmative action should be in the NEM, notably involving vocal Malay rights group Perkasa, and the government needed to decide quickly for the sake of giving investors a sense of direction.

“Dealing with the new version of NEP is sensitive and there is all sorts of speculation but this period needs to be cut short,” Nazir told a law conference here today, referring to the New Economic Policy (NEP).

“My worry is that it is taking too long. Let’s just decide what affirmative action will remain.”

Nazir, whose brother is Prime Minister Datuk Seri Najib Razak, added that Malaysia could be losing out in terms of foreign direct investment (FDI) due to the uncertainty.

“If I come this year I may need a Bumi partner but next year I may not, so wait lah,” he said by way of illustration.

The Najib administration has been trying to lift Malaysia’s profile as a destination for foreign investment to help the country achieve an average GDP growth of at least 6 per cent per annum over the next five years in an effort to become a high income nation.

The country’s FDI rates have fallen faster than other regional players like Singapore and China, and at the same time capital outflows have dampened private domestic investments. Net portfolio and direct investment outflows had reached US$61 billion (RM197 billion) in 2008 and 2009 according to official data.

More recently the UNCTAD World Investment Report 2010 said that FDI inflows to Malaysia dropped 81 per cent to RM4.4 billion last year from RM23 billion in 2008.

Nazir was guest speaker at the 15th Malaysia Law Conference organised by the Bar Council.

Nazir last month repeated his call for a review of the NEP adding that the policy has been unfair to the majority of Malays. He said the time has come for the government to protect the interest of the majority of the Malays and not just selected few.

“I have met a Malay professional overseas who refused to return to Malaysia because he is of the view that successful Malays are not welcomed in the country. This is because the Malays’ success is always linked to NEP,” said Nazir in an interview with Mingguan Malaysia published on June 20.

“In fact some of them refused to return thinking that the NEP is not for them but only to selected Malay groups, so they are better off working overseas,” he said when asked if the new generation of Malays are more open to reviewing the policy.

However, Nazir said certain aspect of the NEP such as scholarships allocation should be retained.

“Those who have been trying to stop efforts to review the NEP are those who are benefiting from the NEP. That was why some contractors were not happy with open tender but they never ask if they get the job, what would happen to other Malay contractors. Why refuse to compete?” said Nazir to a question on the opposition to a review of the NEP.

He said that the policy, introduced during the premiership of his father Tun Abdul Razak Hussein in 1971 has deviated from its original objective.

Confidence is the key

Source: http://www.mysinchew.com/node/42629?tid=12

By LIM SUE GOAN
Translated by SOONG PHUI JEE

It is good when the Ministry of International Trade and Industry (Miti) is concerned about the 81% plunge in the country's foreign direct investment (FDI) last year. However, the most important thing is to improve the investment environment and overcome the weaknesses so that we can re-attract foreign investment.

Miti Minister Datuk Seri Mustapa Mohamed has given various explanations for the decline in the FDI, including investments now shifting to infrastructure projects in backward countries and the global economic crisis leading to 37% fall in the FDI globally. But why then are the FDIs of Thailand and Indonesia continuing to grow?

Instead of speculating, it is better to take a more practical approach by trying to understand how foreign investors think and come out with countermeasures

Prime Minister Datuk Seri Najib Razak has unveiled some economic liberalization measures in April this year, including liberalizing with immediate effect 27 service sub-sectors with no 30% bumiputera equity condition imposed on health and social services, tourism, transport, business, computer and related services. However, these are not enough to reverse the decline. It shows that the problems that hinder foreigners from investing here are serious.

It will not help even if the government is going to announce 200 more investment plans by the end of this year if the problems remain unsolved.

The Finance Minister should set up a workshop, accumulate advices from local and foreign entrepreneurs, classify the complaints into different categories and set deadlines to solve the problems within a year.

Foreigners look at several considerations when deciding on whether to invest in a country:

    Return rate: China is able to attract so many funds because of its very attractive return rate (a huge market and low labour costs). Malaysia is having a sharp drop in business opportunities. Our outflow of FDI has reached US$8.038 billion last year and the factors including lack of open tendering and contracts directly go to companies and entrepreneurs with backgrounds.

    The return rate is related to the increasing labour, government administrative and social costs. If a society is having too many privileges, including racial and political privileges (politicians randomly issue letters of support), it will then violate the principle of fair competition in business.

  1. A sense of comfort: If foreigners do not feel comfortable to invest here while being troubled by governmental red tapes and bureaucracy and are worried about the ever changing investment policies, they will withdraw.

    The sense of comfort should also include no worry in employing foreign workers or labours, sufficient expertise to support, as well as stable power and water supply.

    No one will feel comfortable if they always have to pay under the table, struggle with commissions for middlemen or being stuck in traffic jams every time they step out of their homes.

  2. A sense of security: The sense of security is a psychological feeling and perception which cannot be measured by a Key Performance Indicator (KPI).

    In addition to maintaining public order, the sense of security also comes from a fair and highly transparent judicial system without corruption and power abuse.

    Only a democratic society with a healthy political system that respects human rights will make foreigners at ease as they know that once they encounter a business or personal problem, they are protected by laws.

    When too many mysterious and fraud cases are left unsettled, it will also affect the investment grade. Therefore, it is a right move for the authority to book those responsible for the Port Klang Free Zone (PKFZ) fiasco.

The key lies on confidence. If foreign investors have confidence in our country, the country's reputation will rebound and for sure, our FDI inflow will also increase.

Sin chew Daily

10 ways of doing without FDI

By P. Gunasegaram, TheStar

Source: http://www.malaysia-today.net/index.php?option=com_content&view=article&id=33481:10-ways-of-doing-without-fdi&catid=17:guest-columnists&Itemid=100130

Cut corruption. This insidious, widespread problem is eventually the cause for much bottleneck, inefficiency, higher costs and a downright hindrance to improving productivity at all levels. It’s incredible how little we have done to stop this scourge.

A STIR of sorts has been caused by the story that foreign direct investment (FDI) into the country for 2009 fell 81% to US$1.4bil (about RM4.5bil) from US$7.3bil (RM24bil).

But really it should not. If we want higher value-added, then labour-intensive industries are not our target. This is the area which many foreign investors like because they can get tremendous cost savings by using cheap labour in places like China, Vietnam etc.

If greater value-added is what we are after, then increasingly more investments have to be made in the services area – think tourism or education for instance. That does not necessarily need foreign investment – we can use local money.

We have plenty of money in Malaysia – as much as RM250bil at last count. That’s roughly the excess of deposits over loans sitting with the banks throughout the country.

All that money and nowhere to go within the country, is our problem. The money is not chasing investments in the country. And that can mean only one thing – there is a lack of opportunity here.

The question then is what is it that is reducing business opportunities in Malaysia? Is there too much red tape? Are approvals not forthcoming? Are there too many equity strictures? Do we have sufficient workers?

FDI flows in any particular year into Malaysia pales in comparison to the amount of idle money in the system. What we have to do is to find ways to use that and we will more than mitigate the effects of reduced FDI. Here are 10 ways we can do that.

1) Shift from manufacturing to services. This is inevitable if you want to move towards higher income. Our manufacturing is low value-added. Much of it is low-end assembly. Things like tourism and education offer so much more opportunities and are already large contributors to foreign exchange savings;

2) Reduce export dependence. Old habits die hard and we must realise that we cannot continue to export ourselves out of trouble all the time. What we must do is create a market for ourselves right here. Get our consumers, who seem to have a lot of money, to spend – think restaurants, entertainment, lifestyle etc;

3) Identify and target the high growth areas. Old-style low-cost manufacturing is out. We need to identify some areas for good growth in the future and focus on this. We could easily become a quality education hub for the region for instance and benefit ourselves in the process. We could set aside areas for international universities to be set up;

4) Make incentives the same for both domestic and foreign investors. The days of giving more incentives, latitude and preference to foreign investors must end once and for all and the playing field levelled. In fact, greater encouragement and incentives must be given for the development of local enterprises based on the simple premise that we must help ourselves more;

5) Cut tariffs and taxes. Tariffs are non-competitive and cutting them increases competitiveness of all industries as they are able to source supplies and services which are the cheapest and of the best quality. Cutting taxes provides incentives for making money. Our taxes are still relatively high;

6) Do away with equity targets altogether. With bumiputra equity targets probably already met if we measure using the right techniques, there is no need to force non-bumiputra industries to continue to enter Ali Baba-style partnerships to do this, a highly inefficient process that benefits very few bumiputras in any case;

7) Cut red tape. For all the lip service made to cutting red tape over the years, this is still very much with us. As long as officialdom puts all kinds of barriers in the way of genuine enterprise, expect enterprise to be hobbled;

8) Do away with yearly renewal of licences. If you already have a licence, why renew it yearly? Why can’t it be given to you indefinitely unless you flout licence requirements? Doing away with licence approvals on a yearly basis helps cut bureaucracy;

9) Improve educational standards. We can’t emphasise this enough and the steady decline in educational standards both at schools and universities has not, so far, elicited a strong enough response from the Government which will stop the slide; and

10) Cut corruption. This insidious, widespread problem is eventually the cause for much bottleneck, inefficiency, higher costs and a downright hindrance to improving productivity at all levels. It’s incredible how little we have done to stop this scourge.

Yes, FDI has dropped and it may continue to drop. But really, that’s not the end of the world. Anyway, it’s high time we reduced dependence on FDI and did something to pump up domestic investment instead. And there are many more imaginative ways to do that.

Thursday, July 29, 2010

On development...

Embrace a more holistic view on development - Hafiz Noor

April 12, 2010

Source: http://www.themalaysianinsider.com/opinion/article/-Embrace-a-more-holistic-view-on-development/

APRIL 12 — There is much stress on economic freedom these days. This is clear by the fact that the New Economic Model is advocating less government in various aspects.

So excited are the document authors about the idea of free market that at its rhetorical climax, they highlight the phrase “market-friendly affirmative action”, never mind the apparent contradiction that the phrase invites.

That phrase is perhaps the hallmark of contradiction of the document in terms of economic freedom. The latter part of the document suggests various government interventions that do not tally with its rhetoric.

Yet, the document does begin from a liberal point and that is a good starting line. It has to begin somewhere after all.

Truthfully, the goal of the document is development and not the creation of freer market. Without strong conviction to the idea of free market in pursuing its main goal, contradiction is only natural. To criticise the authors of such contradiction is an effort unlikely to impress them and others who share the same view on development vis-à-vis free market.

They primarily believe that the government has a role in development. Such idea is hardly a controversial one. The government can indeed play a role in development even while adhering to the concepts of limited government and free market.

The issue is that the goal of development set by the New Economic Model is unsatisfactorily limited in its scope. The document limits the idea of development to merely economic progress. It ignores the larger meaning of development, just as freedom takes a larger meaning well beyond the realm of business and economics.

Development is not merely about better infrastructures or higher income levels for us all. While income levels do indicate general well-being in many ways, it is not the only factor in development that needs to be taken into account.

Development must empower individuals in a comprehensive manner. More often than not, this means enhancing economic progress as well promoting individual liberty. Indeed, economic progress and individual freedom work hand in hand. Without the other, each feels empty even if each lifts one up from the gutter by a tiny margin. Both are required to catalyse the jump out of the gutter.

Without development as confined within self-limiting definition of economic progress, individual freedom itself is redundant. Individuals living in dire economic condition will be unable to reap the dividend of liberty for they are incapable of understanding virtues of freedom.

Without such comprehension, they are unable to make full use of it for their benefits. As the Malay idiom goes, what is a flower to a monkey?

There are so many elementary concerns need to be tended to that whatever freedom they have is meaningless. It is the excess capacity that will never be used up. For instance, what is free speech when the stomach growls endlessly? In fact, free speech with an empty stomach can easily descend into anarchy as the hungry and famished knock rule of law essential to the preservation of liberty down to the ground to satisfy their very basic desire while robbing somebody else’s rights and liberty.

Similarly, where there is economic progress without individual liberty, what use of those shinny sedans or overly big four-wheel drives, clean and smooth roads together with tall and richly decorated towers when they are merely a posh prison to keep the prisoners happy? After all, what is economic wealth while one is repressed, living in fear?

They have the all the means but if the means are prevented from reaching the ends by traditions or prejudices, economic progress become meaningless. Life must be one cruel joke if economic progress in the end only comes to naught.

Individuals have to become richer not only in monetary terms but also in terms of themselves. The set of what can be done must be enlarged and the set of what cannot be done must shrink for development to take its holistic meaning. Choices have to expand. Their choices have to be well informed. That is only possible through the tradition of free enquiry that embedded in it the concept of free speech and free press, among others. They must be able to express themselves and to do so is to practice freedom of expression. We talk about how young graduates lack communication and social skills in general: can we blame them when the avenues for practice are limited and guided paternalistically?

This idea is not new. Nobel Prize Laureate economist Amartya Sen is the vanguard of the idea. Although it must be said that he goes farther than a classical liberal would, he articulated similar view much earlier and wrote Development as Freedom for wider consumption.

Development must focus on both fronts for it to be meaningful. It is in this sense that the New Economic Model is insufficient. Malaysia needs more than economic freedom.

This is not to say that the authors of the document are not doing their jobs. Their terms of reference are clear: focus on the economic front. And they are doing just that. They cannot be blamed for that.

The other focus on the social front where it involves individual freedom is the job of ordinary citizens. And the government is in the way. Hopefully, the Prime Minister and his Cabinet embraces the wider meaning of development to enable Malaysia to progress at all fronts. Hopefully, they will realise that only a liberal democratic system can bring Malaysia forward in a convincing style.

* Hafiz Noor Shams is a fellow at the Institute for Democracy and Economic Affairs

* The views expressed here are the personal opinion of the columnist.